Financial Institutions M&A sector trends: Brokers/corporate finance — H1 2020 and outlook for H2 2020.
Thinning of the herd continues as "traditional" brokers struggle to remain profitable amidst encroachment by Bulge Bracket and disruption by fintech.
Overview
CURRENT MARKET
WE ARE SEEING
- Brokers expand to weather the COVID-19 climate:
- Inorganic strategies (e.g., Interactive Investor's acquisition of The Share Centre)
- Organic strategies (e.g., Houlihan Lokey's launch of its European equities advisory business)
- Stiff competition for "traditional" brokers from online and commission-free trading offerings:
- Expansion of foreign platforms into the UK (e.g., Robinhood)
- New UK startups (e.g., Freetrade)
KEY DRIVERS/ CHALLENGES
- High buyer / investor appetite:
- Trade consolidators seeking to galvanise business models (e.g., flatex's acquisition of DeGiro) and diversify client offerings (e.g., Frankfurter Bankgesellschaft's acquisition of 75.1% of IMAP M&A Consultants)
- Foreign investors seeking to tap into Western European opportunities and talent (e.g., Bank of China's acquisition of Goodbody Stockbrokers)
- Management backing themselves (e.g., MBO of Deutsche Regis)
- Wider market appetite (e.g., FRP Advisory's £80 million AIM IPO)
- Availability of stressed opportunities (e.g., Beltone Financial's disposal of 60% of Auerbach Grayson)
- Increasing emphasis on ESG investing—growing demand for:
- ESG investment opportunities (e.g., Clim8's successful Crowd funding round)
- Growing customer demand for ESG investment research (e.g., Morningstar's acquisition of Sustainalytics)
TRENDS TO WATCH
- Consolidation in the US driving deal-making in Europe (e.g., Morgan Stanley's acquisition of E*Trade Financial)
- Growing focus on online and digital channels for product delivery
- Uptick in "acqui-hires"—smaller transactions aimed at securing specific expertise / client teams
OUR M&A FORECAST
Thinning of the herd is likely to continue as "traditional" brokers struggle to remain profitable in a market encroached upon by Bulge Bracket and disrupted by fintech
Publicly reported deals & situations
High investor appetite
Foreign investors:
- Credit Suisse (China): Acquisition of 17.7% of CS Founder Securities (June 2020)
- BCAP Partners (Germany): Equity investment in Orka Investments (May 2020)
- Bank of China (Ireland): Acquisition of Goodbody Stockbrokers (March 2020)
MBOs:
- Deutsche Regis (Philippines): Acquisition of 49% from Deutsche Bank (January 2020)
Market appetite:
- X-Trade Brokers (Poland): Disposal by Systexan of 19% stake (May 2020)
- FRP Advisory (UK): £80 million AIM IPO (April 2020)
Market consolidation to achieve economies of scale & scope
Market highlight:
Morgan Stanley's acquisition of discount broker E-TRADE for US$13 billion is the biggest takeover by a US bank since the global financial crisis
Acquisitions:
- Real I.S. (Germany): Acquisition of 15% of Real Exchange (June 2020)
- Credit Bank of Moscow: (Russia) Acquisition of Investment Bank Vesta (May 2020)
- flatex (Germany): Acquisition of DeGiro (April 2020)
- Banque Internationale Arabe de Tunisie (Tunisia): Acquisition of additional 47.92% of Tunisie Valeurs (April 2020)
- Morgan Stanley (US): Acquisition of E*Trade Financial (February 2020)
- Interactive Investor (UK): Acquisition of Share PLC (February 2020)
- Frankfurter Bankgesellschaft (Germany): Acquisition of 75.1% of IMAP M&A Consultants (January 2020)
Partnerships:
- S&P Dow Jones Indices (UK): Multi-asset benchmark development JV with HIS Markit (April 2020)
Mounting competition
Digital "challengers":
- Ginmon (Germany): Equity investment by BCS (June 2020)
- Freetrade (UK): Successful £4.5 million Crowd funding round (May 2020)
- Clim8 (UK): Successful £1.35 million Crowd funding round (May 2020)
- TransFICC (UK): Successful £5.7 million Series A funding round, led by Albion VC (April 2020)
- Yova (Germany): Successful €3.7 million Venture funding round, led by Wi Venture (April 2020)
- Trade Republic (Germany): Successful €61.6 million Series B funding round, led by Accel and Founders Fund (April 2020)
- Robinhood (UK): Launch in the UK (February 2020)
Organic encroachment:
- Lunar Bank (Denmark): Stock trading platform JV with Saxo Bank (April 2020)
- TP Icap (UK): Launch of UK special situations desk (February 2020)
- Houlihan Lokey (UK): Launch of European equities advisory business (January 2020)
Inorganic encroachment:
- Morningstar (Netherlands): Acquisition of 60% of Sustainalytics (April 2020)
Alternatives to "traditional" broking:
- Bricknode (Sweden): Acquisition of Lendysoft (June 2020)
Click here to download Financial services M&A experiences shortness of breath in H1 2020 (PDF)
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